Nexus between Financial Inclusion and Economic Growth

Financial inclusion ensures access to appropriate financial products and services needed by all sections of society, especially the vulnerable low-income groups, at an affordable cost fairly and transparently by regulated mainstream financial institutions. The study investigated the causal relationship between financial inclusion and economic growth. The study adopted the Granger causality test, using the two-step generalised method of moments. The study adopted three measures of financial inclusion: branches of commercial banks per 1000 adults, depositors with commercial banks per 1000, and outstanding loans with commercial banks as a percentage of gross domestic product. The results showed bidirectional causality between economic growth and financial inclusion. The results imply that causality runs from economic growth to financial inclusion and vice versa. It shows that there is two-way causality. These results apply to two measures of financial inclusion, i.e., branches of commercial banks per 1000 adults and outstanding loans with commercial banks as a percentage of gross domestic product. The results between depositors with commercial banks per 1000 and economic growth showed a unidirectional causality from economic growth to financial inclusion. The result of the study implies that governments in the Southern African Development Community should pursue twin policies that spur both financial inclusion and economic growth, given that both are essential variables influencing each other.